M & A Impact On Agency Costs And Corporate Performance

One big trend of nowadays is to enhance enterprise's competitiveness through merger & acquisition(M&A).But the hot practice hasn't brought about the positive effect on Chinese pharmaceutical industry as expected.156 M&A cases happened from 2002 to 2005 in Chinese pharmaceutical industry in total,resulting in the deficit rate up to as high as 22.62%in 2006.Is the overvaluation on M&A to blame,or the corporate govemance should account for that? In order to look into the depth of the problem,the author embarked on a deep analysis about effect of M&A on corporate performance and agency cost via the main empirical analysis method of principal component analysis,with respect of data of listed companies of pharmaceutical industry,trying to conduct the objective study on M&A effect on Chinese pharmaceutical enterprises,and offering strategic suggestions.This paper consists of seven chapters.The first chapter introduces the background, targeted problems and major concepts to be discussed.Chapter 2 is a brief review and evaluation on the theories of M&A motivation and effect,coming up with the conclusion that transference of control right improves performance of targeted companies.Chapter 3 is theoretical analysis on agency costs,including the definition, measurement and causation,leading to the conclusion of agency problem happening when the ownership is separated from the control.The author tries to find out the solution to agency problem in Chapter 4,which is to bring in M&A as an exterior mechanism to reduce agency cost while interior mechanism turns out to be invalid. Empirical analysis on listed companies of Chinese pharmaceutical industry is introduced in Chapter 5 and 6,describing the fluctuation of the performance and agency cost of targeted companies over years pro-and-post M&A.In the end,the author summarizes the key points of the paper in Chapter 7.